There are a combination of factors behind this. Some blame a culture of over-praise from some parents: that with modern-day parenting focusing on telling your child how "special" they are , these children then grow into up into adults who believe it to be literally true. Others are more sceptical of this "blame the parents" attitude, Obviously, all children need to feel "special" in one way or another in order to have a healthy sense of self-esteem. The challenge is knowing where to draw the line, or where to find the right balance between promoting self-esteem but not encouraging unhealthy narcissism.

I've written before about some of the social conditions that can lead to narcissism (also called NPD). What's difficult to deny regarding the scientific evidence (and may seem to be stating the obvious anyway) is how narcissism seems to have expanded through society as we move from one generation to the next. Studies have shown this, as I mentioned at the beginning: the "Y generation" are much more clinically narcissistic than their parents and grandparents. The question is:why?

The Narcissistic Society

Scientific studies have shown how different societies around the world can be either instinctively "collectivist" or "individualist". Again, this may seem like stating the obvious, but it's always good to have solid evidence to dispel the idea that "common sense" notions are not just myths.
Some of the most "individualist" societies in the world are, not surprisingly,"Anglo-Saxon" societies are more individualistic, especially the USA. Staying in the West, at the other end you have Scandinavian society, which is much more instinctively "collectivist". Other societies, such as Japan and China, are also socially collectivist (in spite of being clearly Capitalist), What we mean by "collectivist" is that, for example, in an office environment, workers in collectivist societies take into consideration the unit of the workforce, and the emotional well-being of others. This isn't to mean that they are "better" exactly; rather, a worker's actions in a collectivist society are highly-influenced by his interactions with those around him, and working closely with those around him is the way to get things done. Egoism is a no-no.
In individualist societies, the workplace is a much more dog-eat-dog place, where would be considered weak to not put yourself forward when the opportunity occurs. Self-promotion and doing-down your rivals is considered normal; being a conspicuous "team player" is not really the way to get ahead.

Individualist societies have become more conspicuous in the last thirty years or so. The anecdotal evidence is there, as well as the scientific evidence. In the same way that many countries around the world actively seek to emulate American culture, the same can also be said of the technological and social changes that have happened, especially since the turn of the 21st century. Narcissists are known as having two main attributes: self-love and a lack of empathy for others. In the regard of lack of empathy, Narcissists share an attribute with (far more dangerous) psychopaths (more on them here).

At the start, I talked about how parenting was said to be one (disputed) factor for the "Y" generation showing higher levels of narcissism. While it's not entirely clear if we can simply "blame the parents" - although it certainly could be an environmental factor - there are other factors about the modern working and social environment that make narcissism much easier to "nurture" within an individual.

"Look at my awards!": In the modern work environment, the resume/CV is an essential tool for getting the job you want in your career. Your CV has to be a statement of not who you are, but a statement of what you are. Are you a go-getter or a shrinking violet? It is expected to list all your achievements (no matter if that involves absurd embellishments - more on that in a moment), and treat yourself as less a person than a brand. These expectations naturally would encourage narcissistic behaviour in order to make you sound like you are the best at everything.

Fight for your place: One of the reasons why this is necessary is due to the insecurities that exist in the modern working environment. While in their parents and grandparents generation, "jobs for life" were commonplace, now job insecurity is the norm. For this reason, younger people are obliged to stand out from the others in order to simply get an interview; and if they expect to prosper at the company in the long-term, they will need all their skills in narcissism and doing-down their rivals in order to do so. Thus if they want to be sure of getting noticed in the first place in such an unforgiving work environment, it would be natural to embellish their CV.

"My friends always seem so much happier than me": One of the side-effects of narcissism is depression and mood swings (as well as laziness and arrogance). The explosion of social media in the last ten years - especially the "Facebook generation" - has allowed people to create and manage their own "profile" on social media for their peers to see (and admire). The problem with this is that social media by definition is not the same as reality. Anyone posting pictures on social media, for example, is always going to show pictures of them enjoying themselves with their friends. The more "friends" you have, the more you will see others having a good time. And so, in your mind, it will look like everyone else is having a good time when you are not, even though the reality is different. This feeds a vicious circle of creating a false image of what is really happening. Thus the narcissists' "supply" (i.e. source of admiration) will have to extended further.

Better, faster, higher... : Advertising is everywhere, and the expansion of technology in life has created the impression that things should be expected "now". Even in matters as prosaic as cooking, it sometimes appears that people no longer "have the time" (or patience?) for real cooking. The way that the capabilities of computers and other related technology have grown so quickly has had the knock-on effect of allowing people to think that everything should happen as quickly. Technology comes in and out of fashion in a matter of months. All these factors create a social environment that changes people's "expectation management".

"Expectation management" is considered one of the key "problems" identified in the levels of narcissism described in "Generation Y". Having been raised by parents to believe they could "have it all" because they are "special", real-life provides a nasty slap in the face.
In truth, many of the parents saying these things obviously meant well: the problem is that the social and economic conditions have changed. "Generation Y" cannot expect to get the mortgage, fast car and stable job that his parents did. But his parents didn't know this. Now stuck with a student debt, a zero-hours contract and still living at home with his parents, a "Generation Y" individual can only have the option of living out his narcissistic fantasy on social media, for example - or by abandoning responsibility and getting into financial problems, turning to petty crime, or worse.